Wednesday, September 25, 2013

A huge amount has been written about China's real estate "bubble". While a lot of what is written can be dismissed as the frothy ramblings of permabears who see bubbles everywhere, there have been a number of points of legitimate concerns about China's housing market. One claim which I have always had difficulty reconciling with the China's urbanisation (and rational financial behaviour by investors) is the reports of "ghost cities" - large scale residential developments with associated retail shopping malls and other facilities which appear to be empty.

There is little room to dispute the fact that there are a lot of recently completed developments which are empty. However, it Nicole Wong of CLSA has provided a rational explanation for this phenomena - in China new developments are sold as empty shells and it typically takes about three years for a development to reach a point where it has a substantial level of occupancy. Since she visited 137 projects on a recent trip, it can be safely assumed that her position is supported by first hand observation (i.e. it is not just some random theory).

Wednesday, September 04, 2013

I have added some shares in Swire Pacific (HK:19) to the portfolio. I do not expect this to be a high preperforming investment - instead I am looking at this company as being a reliable dividend payer and an alternative to some of the excess cash I am sitting on.

I did look at the B shares (HK:87) which trade at a slight discount to the A shares, but the difference in price would very likely have been lost in the lower liquidity and wider spread (unless I hold for a long period of time).

I am now down to my final month in the work force. While I am looking forward to my retirement, it is not without some trepidation that I will be saying goodbye to my career and my pay cheque.

Financially, this year has not been a great one - I have seen my investment in China Metal Recycling (HK:773) reduced to zero, my investment in iShares India has dropped by nearly 30% since the start of the year (but still comfortably above what I paid), the privatisation of China VTM Mining (HK:893) failed causing the shares to drop by over 40% (now partially recovered) and (most significantly), the AUD and NZD have fallen sharply against the USD/HKD. I am also seeing property valuation decline from their peak (which does not bother me at all) and am expecting rental incomes to fall and vacancies to increase as leases come due for renewal (which does affect me). Add in the HKSAR government's mandatory window inspection which is costing me thousands of dollars per apartment and two properties going through refurbishment and the outgoings have been high this year.

But in spite of these issues, I should not forget that:

1. the portfolio as a whole is still doing its job. The issues with equity investments identified above have been mostly offset by good performances elsewhere;

2. all the properties are fully occupied, all tenants are paying on time and there is still more cash coming in than going out. I now have one Hong Kong property mortgage free and am considering paying off the mortgage on one of the others;

3. when I put the numbers into FIRECalc or my own spreadsheet, I have to assume a lot of bad things before I have to worry about sustaining my retirement. I still worry far more about inflation than I do about market volatility;

4. I have more cash than I would like. While this liquidity provides short term safety, it creates long term risk. Finding a home for at least some of the cash is something of a priority right now.

Sunday, September 01, 2013

August was a modestly good month for my investments. Net worth increased slighty. High income produced excellent savings and the principal component of my mortgage repayments combined with reasonable gains on my equities and commodities were only partially offset by the impact of a further decline in the AUD and NZD.

Here are the details:

1. my Hong Kong equity portfolio appreciated. During the month, I purchased some additional shaes in Anhui Expressway and Sinolink Holdings. I hold shares in CMR which is currently suspended following an attack by a short seller alleging fraud. I am currently assuming a 100% loss on this position;

3.my ETFs increased in line with the local markets (except India which decreased with the Rupee). There were no new purchases;

4. my commodities increased. Silver is my only position which rallied strongly;

5. all of my properties were occupied with all tenants paying on time. There were only minor repair bills this month. Unfortunately, one building has received notcies for a mandatory window inspection. One property is now debt free;

6. currency movements were negative, with losses in both the NZD and the AUD;

7. my position in bonds remains small;

8.I have purchased a NZD/HKD forward contract;

9. savings were high with high income and moderate expenses (including a summer holiday which came in under budget);

10. there were no transfers to Mrs Traineeinvestor this month.

My cash position rose slightly with money coming in than going out due to new investments. I currently hold 59.43 months of expenses in HKD cash or equivalents. This is above my target floor of 24 months.

For the one month period, my net worth rose by 1.08%. The year to date increase is 6.97%. This means that my investments have more or less broken even this year. My retirement date has been fixed for 30 September.